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Match Group (MTCH) Down 10.1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Match Group (MTCH - Free Report) . Shares have lost about 10.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Match Group due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Match Group Q3 Earnings Top, Revenues Surge Y/Y

Match Group delivered third-quarter 2018 adjusted earnings of 39 cents per share, which surpassed the Zacks Consensus Estimate by 3 cents and was significantly higher than year-ago quarter figure of 19 cents.

Revenues of $443.9 million surged 49.2% year over year and beat the Zacks Consensus Estimate of $437 million. The year-over-year growth was primarily driven by 23% increase in average subscriber base and 6% rise in Average Revenue per Subscriber (ARPU).

Quarter Details

Average subscriber base and ARPU were 8.1 million and 57 cents, respectively, at the end of the reported quarter. North America subscriber base increased 18%, while International jumped 29%. Growth in ARPU was driven primarily by strength in both North America (up 6% year over year) and international (up 7%).

In the third quarter, Tinder average subscribers increased 61% year over year and came in at 4.1 million. ARPU grew 24% year over year, primarily on the back of higher number of Gold subscribers.

During the reported quarter, Match, Meetic, PlentyOfFish and OkCupid also registered growth.

Adjusted EBITDA was $165 million, up 38% year over year. Adjusted EBITDA margins came in at 37.2%, up 240 basis points (bps) year over year.
 
Total cost and expenses increased 20.5% year over year to $304 million. Selling and marketing (S&M) and product development expenses increased 14.2% and 26% on a year-over-year basis, respectively.

Operating income surged 53.7% from the year-ago quarter to $139.9 million. Operating margin expanded 500 bps to 31.5%.

Balance Sheet

Match Group exited the third quarter with cash and cash equivalent balance of $403 million, up from $309.8 million reported in the previous quarter. The company had long-term debt of $1.3 billion up from $1.25 billion at the end of previous quarter.

Cash flow from operations was $425.2 million in the nine months ended Sep 30, 2018. Free cash flow came in at almost $404 million.

During the first nine months, the company repurchased 2 million shares and an additional 400K shares between Oct 1 and Nov 2. The company had 3.6 million shares remaining under the previously announced share repurchase program.

Match Group also declared a special cash dividend of $2.00 per share to be payable on Dec 19.

Guidance

Match Group anticipates fourth-quarter 2018 revenues between $440 million and $450 million. Tinder remains the key catalyst. Unfavorable foreign exchange and negative impact of GDPR is expected to hurt top-line growth.

Adjusted EBITDA is anticipated to be in the range of $160-$165 million. Management expects marketing spending to increase almost 20% year over year due to marketing campaigns at Tinder as well as Hinge and Pairs. Litigation relation expense is projected to be $3 million.

For fiscal 2018, Match Group expects revenues top-end of the previously provided guidance range of $1.68-$1.72 billion.

Adjusted EBITDA is now expected to hit the top-end of the previously provided guidance range of $625-$650 million. EBITDA includes $7 million of increased litigation costs and Hinge-acquisition related expenses.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Match Group has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Match Group has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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